U.S., Brazil Agree on Memorandum of Understanding As Part of Path Forward Toward Resolution of Cotton Dispute
Countermeasures to be Deferred for an Additional Sixty Days
Washington, D.C. – Today, the United States and the Government of Brazil signed a Memorandum of Understanding (MOU) establishing a fund for technical assistance and capacity building related to the cotton sector in Brazil.
Under the MOU, the fund may also be used for activities related to international cooperation in the cotton sector in countries in sub-Saharan Africa, in Mercosur member and associate member members, in Haiti, or any other developing country as the parties may agree upon. The MOU also includes procedures to ensure transparency and auditing of the expenditures made from the fund.
This MOU is part of the path forward for the Cotton dispute that the United States and Brazil reached earlier this month. With the conclusion of the MOU, Brazil has announced that countermeasures will not be imposed in the Cotton dispute for at least 60 days. The fund is scheduled to continue until the next Farm Bill or a mutually agreed solution to the Cotton dispute is reached. The MOU also provides that the United States also may end the fund if Brazil imposes countermeasures.
This process builds upon our strong relationship with Brazil, and demonstrates how our two countries can work together to address challenges. During the next 60 days, the United States and Brazil will continue their work by negotiating a framework for reaching a mutually agreed solution to resolve the Cotton dispute.
In 2005 and again in 2008, the World Trade Organization (WTO) found that certain U.S. agricultural subsidies are inconsistent with WTO commitments: (1) payments to cotton producers under the marketing loan and countercyclical programs; and (2) export credit guarantees under the GSM-102 Program, a USDA program used to provide guarantees for credit extended by private U.S. banks to approved foreign banks for purchases of U.S. agricultural products by foreign buyers.
On August 31, 2009, WTO arbitrators issued arbitration awards in this dispute. These awards provided the level of countermeasures that Brazil could impose against U.S. trade. The annual amount of countermeasures has two parts: 1) a fixed amount of $147.3 million for the cotton payments and 2) an amount for the GSM-102 program that varies based upon program usage. Using the data that we have given Brazil (in accordance with the arbitrators' award), the current total of authorized countermeasures is more than $800 million.
The arbitrators also provided that Brazil could impose cross-sectoral countermeasures (i.e. countermeasures in sectors outside of trade in goods, specifically intellectual property and services). It may impose cross-sectoral countermeasures to the extent that it applies total countermeasures in excess of a threshold. The threshold varies annually, but is currently approximately $560 million. Therefore, of the approximately $820 million in countermeasures Brazil could impose now, about $260 million of that could be cross-sectoral.
On March 8, 2010 Brazil announced a final list of products that would face higher tariffs beginning on April 7, 2010. Goods on the list include autos, pharmaceuticals, medical equipment, electronics, textiles, wheat, fruit and nuts, and cotton. Brazil had not made a final decision on which U.S. intellectual property rights might be affected by cross-sectoral countermeasures, but it had begun a process to make this determination.
On April 1, Deputy USTR Miriam Sapiro and USDA Undersecretary for Farm and Foreign Agricultural Services Jim Miller met with Ambassador Antonio Patriota, Secretary General of Brazil's Ministry of External Relations to discuss possible resolution of the dispute. As a result of that dialogue, the Government of Brazil agreed not to impose any countermeasures on U.S. trade on April 7. In exchange, the United States agreed to work with Brazil to establish a fund of approximately $147.3 million per year on a pro rata basis to provide technical assistance and capacity building. The MOU signed today implements this commitment.
The United States also agreed to make some near term modifications to the operation of the GSM-102 Export Credit Guarantee Program, and to engage with the Government of Brazil in technical discussions regarding further operation of the program. On April 6, USDA announced that it was cancelling unutilized balances from the GSM-102 program announced fiscal year 2010 to date, and that these balances would be re-announced under new fee rates. New fee rates were announced by USDA April 19 and the unutilized balances were re-announced today.
The United States also agreed to publish a proposed rule by April 16, 2010, to recognize the State of Santa Catarina as free of foot-and-mouth disease, rinderpest, classical swine fever, African swine fever, and swine vesicular disease, based on World Organization for Animal Health Guidelines. This proposed rule was published on April 16, and includes a 60-day public comment period. The United States also agreed to complete a risk evaluation that is currently underway and to identify appropriate risk mitigation measures to determine whether fresh beef can be imported from certain other regions of Brazil while preventing the introduction of foot-and-mouth disease in the United States.
Following implementation of these initial steps, the United States and the Government of Brazil agreed to continue engagement on these issues, with a view to agreeing on a process by June that will allow us to reach a mutually agreed solution to the Cotton dispute.